Following last night's freak central-planning accident (previously in history known as "selling") in the S&P futures, we said that "we expect Overnight Ramp Capital to arrive promptly or else confidence in central-planning may take a hit ahead of the Wednesday Taperish FOMC, and Thursday's double POMO." A few hours later, even we were surprised by how high the low volume tape managed to drag ES, which staged a dramatic 20 point comeback, on the back of a sharp reversal in FX driven higher by both a stronger Euro (helped by better than expected German and Eurozone PMIs offsetting China PMI weakness, and lack of optimism in the core Japanese Tankan) and a weaker Yen, the two key signals for E-mini directionality. Sure enough, at last check the futures we trading just why of the "independence day" 1776, after briefly breaking the 50-DMA and then being supported by 1760 in the futures. The rest is perfectly predictable central-planning history.

Summarizing, tonight's action, FOMC week has kicked off with Asian markets down after a lower than expected Chinese manufacturing PMI, raising fears that the Chinese economy may not be picking up steam as well as some anticipated. This lead to the previously reported big block trade in the S&P futures which tested the 50 DMA. The Nikkei closed down -1.6%, the Hang Seng is down -0.6% and the Shanghai Composite is down -1.6%.

However, European easily equities shrugged off a risk-averse Asia-Pacific trading day after Tokyo trade saw a break of the 50DMA in S&P futures saw a significant block trade passing through, sending the US equity futures and regional indices lower in a poor start to the week. European equities capitalised on the losses amid touted bargain-hunting to register gains at the mid-point of the session. The telecoms sector tops the board after reports that Sprint could be eyeing Deutsche Telekom’s T-Mobile US unit, and news that US fund BlackRock have acquired a significant stake of Telecom Italia’s equity. As was the case last week, volumes remain particularly thin, with traders sitting on the side-lines ahead of the FOMC rate decision on Wednesday. European fixed income markets trade flat after pulling back from intraday highs as German Manufacturing PMI exceeded expectations, driving the Eurozone-wide figure forward and countering France’s disappointing submissions.

Markets continue to reprice their Fed taper expectations, as Goldman Sachs reaffirm their call for a March taper due to low inflation, a preference for stronger forward guidance and the minority view of a December taper.

The rest of today’s session looks ahead to empire manufacturing and industrial production data from the US ahead of a scheduled appearance from the Fed Chairman Ben Bernanke at 1900GMT/140EST, although it is highly unlikely he will make any reference to policy ahead of the convening of the FOMC tomorrow. ECB’s Draghi is scheduled to speak in front of European parliament at 1400GMT/0900EST

Event Calendar

ECB president Draghi speaks at the EU Parliament (9:00)

Empire mfg survey, cons 5.0 (8:30)

Industrial output, cons 0.6%, capacity use, cons 78.4% (9:15)

Markit PMI, cons 55.0 (8:58)

TIC capital flows, cons $40bn (9:00)

POMO: Fed to purchase $2.75b-$3.5b in 2021-2023 sector (11:00)

Overnight headline bulletinfrom Bloomberg and RanSquawk

European equities shrugged off a risk-averse Asia-Pacific trading day following the release of a better than expected German and Eurozone Manufacturing PMIs.

Goldman says first Fed tapering move is more likely in March, with the taper this week unlikely because the case for tapering is mixed on basis of data since Oct.

Early USD weakness was further exacerbated by the possibility of repatriation flows for EUR as banks prepare for the ECB's Asset Quality Review.

10Y yield little changed over five trading days ended Dec. 13; on Thursday closed at highest since Sept. 13 after retail sales data suggested a higher probability of Fed taper

After misleading investors with a time line for tapering its unprecedented stimulus, the Fed now is stressing that any reduction in bond purchases will depend on the economic outlook -- and the message is sinking in

HSBC/Markit’s index of Chinese manufacturing fell to 50.5 in Dec., a three-month low, from 50.8 the previous month and median est. of 50.9 in Bloomberg survey

Large Japanese businesses pared their projections for capital spending this fiscal year, signaling challenges for Abenomics as a sales-tax increase looms in April

The London housing market will cool next year as a proposed tax on property sales limits demand from overseas buyers, Rightmove Plc said

The Obama administration last year took longer than normal to clear rules ranging from environment protection to food safety, a shift that an advisory body says may have been politically motivated

The U.S. failed to send data to health insurers for about 15,000 people who enrolled in Obamacare through early December, an error corrected this week before it could jeopardize their coverage, the government said

China have set their 2014 growth target at about 7.5%. China’s economy is still under downward pressure and the country should keep its policies stable and flexible, paving the way for further reforms, according to a statement from the annual Central Economic Work Conference which sets the tone for next year’s macroeconomic policies.

Japan may set FY 2014 real GDP growth estimate at 1.3% from 1.0% after considering the impact of the stimulus package.

EU & UK Headlines

ECB’s Draghi said ECB is ready and able to take further action to stimulate growth and sees Euro area growth of 1.1% in 2014 and 1.5% in 2015.

ECB’s Asmussen said he will resign as ECB board member shortly, saying he has accepted an offer to become deputy labour minister in the new German government. There were also reports that Bundesbank VP Sabine Lautenschlaeger is to replace Asmussen in ECB.

German SPD members back coalition with Merkel’s CDU-CSU bloc, with 76% of the vote, clearing the way for a German coalition.

German finance minister Schaeuble says main goal for next 4 years to stabilize Euro area.

Bundesbank expects German economy to expand strongly in Q4 2013 and Q1 2014 with an expected piku up in industrial production, particularly cars.

Rightmove said that asking prices for houses in England and Wales could climb next year at their fastest rate since 2006, rising another 8% due to shortage of homes on the market

Goldman says first Fed tapering move is more likely in March, with the taper this week is unlikely because the case for tapering mixed on basis of data since Oct.

Fed watcher Hilsenrath said that Fed officials face a delicate decision at their policy meeting this week, with stronger economic figures and a Washington budget deal adding fuel to the debate over whether to pull back on their signature bond-buying program. Hilsenrath added that whenever the Fed starts winding down the bond program, it is clear it is on the way toward removing a tool that has been the market's crutch for more than a year. Mr. Bernanke might start the process, but it will be Ms. Yellen's job to finish it.

US Senate Majority Whip Durbin says Senate Democrats are still short of the votes needed to pass the bipartisan budget deal that was passed by the House of Representatives last week.

Republicans are gearing up for a new fight with President Obama over the need to lift America's borrowing limit early next year, raising concerns that the fiscal truce established in last week's bipartisan deal may be shortlived.

Equities

European equities have continued to rise in recent trade amid light volumes and initially being red across the board in early trade following the risk off sentiment seen across the Asia session. In terms of sectors, financials are one of the top performers this morning following a slight altering in the Fed taper timeline after Goldman Sachs said the central bank is likely to hold off from tapering its USD 85bln monthly bond-buying program until next year. Aggreko are the outperforming stock this morning after the Co. said FY likely to be 'slightly' ahead of expectations.

Deutsche Telekom are also seen with gains after reports for T-Mobile US, which the co. owns a 66.83% stake in, Sprint are said to be working for a bid for T-Mobile US.

FX

From an FX perspective, the USD index is seen down around 0.25%, after initially being lead lower by USD/JPY after printing multi-year highs last week, with focus remaining on this week's FOMC decision. As European participants came to market, early USD weakness was further exacerbated by the possibility of repatriation flows for EUR as banks prepare for the ECB's Asset Quality Review. Furthermore, this morning's three-month Euribor fix showed another increase as it came in at 0.290% vs. Prev. 0.282%. It is worth noting that overnight, AUD was initially pressured by the weaker than expected Chinese PMI data and comments from RBA Stevens that the government are to abandon their budget surplus targets. However, AUD did recover as it came in to strong bids towards 0.8900.

Commodities

WTI and Brent futures are trading higher with attention placed upon comments from Eastern Libya rebel leader Jedran said oil ports are not to reopen after the Libyan government did not meet conditions for handover of control.

Iraq are currently producing 3.3mln bpd of oil and are targeting more than 4mln bpd of crude next year according to deputy PM Al-Shahristani.

The Keystone XL pipeline has lost support from Continental Resources, one of the companies committed to ship crude on the pipeline, after they said the XL pipeline is no longer needed.

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DB's Jim Reid concludes the overnight recap

So all eyes on 2pm EST (7pm GMT) Wednesday as the 2-day FOMC meeting concludes with a knife-edge decision. It’s worth reminding readers that our Chief US Economist Peter Hooper thinks that the Fed might not make their final decision until after tomorrow's CPI is known to them. Peter argued on DB's World Outlook call last week that three of four criteria for the Fed to start tapering now look to be met, with the only missing element being their commitment to keeping inflation on target, which is an important miss in our eyes, especially in an era of very high debt. The other three that Peter sees as being met are (1) a significant improvement in the labour market, (2) confidence that the economic recovery is self sustaining (very close, especially with recent data), and (3) the removal of fiscal uncertainty (the deal over the past week has lessened concerns significantly).

With regards to inflation, Friday’s PPI number left YoY PPI and core PPI at just +0.7% and +1.3% respectively against consensus of +0.8% and +1.4%. Given the Fed’s dual mandate recent low inflation numbers are a genuine reason not to taper if the Fed believe they will be sustained into 2014. However most of their forecasts see it climbing higher with the economy next year so they could excuse the current low prints if they were so minded and assume it will improve but it would help their argument if tomorrow's CPI wasn't weak. Consensus is expecting a +1.3% number for the YoY CPI number and +1.7% for YoY Core CPI. So a possible pivotal release tomorrow.

Ahead of this, FOMC week has kicked off with Asian markets down after a lower than expected Chinese manufacturing PMI, raising fears that the Chinese economy may not be picking up steam as well as some anticipated. As we type the Nikkei is down -1.1%, the Hang Seng is down -0.5% and the Shanghai Composite is down -1.4%. Credit is marginally outperforming, with the Asia XJ index tighter by around 1.4bps.

Over the weekend the tensions in the East China Sea went up another notch after Japanese PM Abe stated after an ASEAN summit that China’s new air defence identification zone was a violation of international law. China responded by expressing their, “strong dissatisfaction,” with his comments. The concern is that whilst direct confrontation seems extremely unlikely China’s new defence zone has certainly raised the chances that a miscalculation by either side in this hotly contested area could see tensions rise to dangerous heights. In Europe members of Germany’s SPD party voted overwhelmingly to back the SPD’s planned coalition with Merkel’s CDU which should see the new Grand Coalition government take office this week as Merkel presents here new government to the Bundestag on Tuesday.

European equity markets were marginally down and US markets slightly positive on Friday after a weak open stabilised later in the day helped in part by the low US PPI number which softened some taper expectations. Credit outperformed on the day, with Europe’s Main, Xover and US CDX HY all tighter by 1bp, 6bps and 3bps respectively after European credit opened strongly following a weak Thursday.

In terms of news flow Friday saw reports that the US Congress had reached an agreement on legislation (known as Trade Promotion Authority) to allow fasttrack votes in 2014 if the White House achieves its aim to agree new trade deals with both the EU and Pacific Rim nations (the TPP deal). The bill will be put to a vote in January and if passed would allow any trade deals to face a simple up-or-down vote and stop Congress from adding amendments to the deal. This should help the US reach trade agreements as it will ease other nations concerns that any deal they reach with the US President will be altered significantly by Congress. As the FT reports, this Trade Promotion Authority legislation is a controversial subject and will likely see fierce battles in Congress in the new year. Looking ahead if the US can agree trade deals with European and Pacific Rim nations in 2014, these with the recent Doha agreements have the chance to provide a positive tailwind for global growth in the medium- and long-term.

With what continues to be a busy December for us here it’s good to see that economic data isn’t slowing down yet for Christmas either in what will be a busy week of data releases. In the US, today will see Empire Manufacturing, Nonfarm Productivity and an important US PMI Preliminary number (consensus is expecting a rise to 55). As we’ve already flagged Tuesday will see CPI data and Wednesday we will get the Fed’s rates and purchase decision. On Thursday we have initial jobless claims before Friday’s Q3 GDP revisions and PCE data. In Europe today we have PMI’s for Germany and the Eurozone. UK and Eurozone inflation data will be released on Tuesday and we’ll have theBank of England’s minutes on Wednesday. Nevertheless, all eyes will be on the Fed’s decision on Wednesday